Land prices not in a bubble

Rick Huber, risk analyst for Farm Credit Services of America, in the most recent “Doane’ Agricultural Report” provided his way of analyzing whether farmland prices are in a bubble.

He noted that the big run-up in farmland prices seen in the 1970s did in hindsight turn out to be a bubble, and, therefore, the comparison is between today and almost 40 years ago. Through an economic process of evaluation, Huber ended up with a conclusion that prices aren’t in a bubble.

His conclusion is as follows: “Farmland prices are understandable and justifiable looking at the economics, unlike in a “bubble” atmosphere where values are grossly unattached to the empirical value.

Naturally, agricultural land prices will come down eventually, when the value of farm products declines and when expectations exist for those prices to remain lower. But that’s not a ‘bubble bursting.’ That’s the natural law of supply and demand at work, one of the few laws that can never be repealed.”